Entries in Azerbaijan
(49)

U.S. v. Kozeny.Bloomberg's David Glovin continues his great coverage of Frederic Bourke's prosecution under the Foreign Corrupt Practices Act. His latest story says the government's witnesses will include a former U.S. Defense Department analyst, Christine Rastas, who worked for an investment bank run by co-defendant Victor Kozeny, and John Pulley, an ex-agent with the Drug Enforcement Administration who was Kozeny's security chief. Testifying with immunity, Rastas and Pulley are among at least "six people [who] have now said they were aware of wrongdoing in the deal" to privatize Azerbaijan's state oil company, reports Glovin.

Blasts from the past. A story yesterday by Lynne Marek of The National Law Journal (carried in law.com here) mentions the potential resolution of a couple of FCPA investigations that have been pending for years -- Halliburton (from 2003) and DaimlerChrysler (from 2004). "Halliburton," the story says, "disclosed in 2003 that regulators were probing $2.4 million in payments by one of its subsidiaries for favorable tax treatment in Nigeria. The DaimlerChrysler probe was triggered when a former employee alleged in a now-settled 2004 whistleblower lawsuit that the company had secret bank accounts for bribing foreign officials."

Real heroes. A special salute to the men and women in uniform everywhere who serve their countries and communities, and to their loved ones.

We're thankful for . . . These words spoken by Robert F. Kennedy in March 1968:Yet the gross national product does not allow for the health of our children, the quality of their education or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials. It measures neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our devotion to our country. It measures everything, in short, except that which makes life worthwhile.

Frederic Bourke wants to know if the U.S. is prosecuting him for violating the Foreign Corrupt Practices Act because he was a whistleblower who interfered in the strategic relationship between the United States and Azerbaijan.

Bourke's lawyer -- the high-profile Dan Webb -- has asked U.S. District Judge Shira A. Scheindlin to review internal prosecution documents prepared before Bourke was charged. "The documents may show whether prosecutors brought the case to punish Bourke for disclosing a crime involving the Socar deal and interfering in the U.S.'s relationship with Azerbaijan a decade ago," Webb said. Bourke's showing that he's the target of a vindictive prosecution could result in a dismissal of the charges against him.

These are among the details in a current story carried by the Bloomberg wire and written by David Glovin. Last month Glovin wrote a fascinating profile and interview of Bourke's co-defendant, Victor Kozeny, who's in the Bahamas fighting extradition. Bourke is accused of helping Kozeny pay bribes to government officials in Azerbaijan in a failed attempt to take over the state oil company known as Socar. Bourke's trial is scheduled to start in March next year.

At a hearing last week in U.S. v. Kozeny, 05-cr-518, U.S. District Court, Southern District of New York (Manhattan), defense attorney Webb said Bourke wants to explore "the possibility that somebody decided to silence him. Why did a whistleblower get indicted?''

Bourke invested and lost $8 million with Kozeny. His lawyers have said in court filings that Bourke suspected in late 1998 that Kozeny was stealing from investors. Bourke then began collecting evidence to prove the fraud. Bloomberg reports: "Bourke took the evidence to state and federal prosecutors in New York and met with Azerbaijan's then-president, Heidar Aliyev, to expose Kozeny's wrongdoing, the court papers say. . . Webb said Bourke's actions may have interfered with the U.S.'s strategic relationship with the oil-rich nation. Bourke wants to know if the U.S. is punishing him for speaking out, Webb said."

Assistant U.S. Attorney Harry Chernoff urged Judge Scheindlin to deny Bourke's request that she review the documents, saying there is no evidence to support his claim and that Bourke is engaged in "a fishing expedition." Scheindlin hasn't yet made a ruling.

Webb also asked Judge Scheindlin to order prosecutors to search for records in the Central Intelligence Agency and the U.S. State Department that may support other defense claims. In addition, he wants the judge to force the U.S. National Security Agency to turn over recorded intercepts of conversations involving Kozeny, Bourke or others in Azerbaijan, if they exist.

In August this year, a Washington-based non-profit watchdog group that defends whistleblowers alleged that James Wolfensohn, the former head of the World Bank, helped Kozeny by quashing staff concerns and writing letters on Kozeny's behalf. Wolfensohn has said the report by the Government Accountability Project (GAP) is wrong.

An earlier Bloomberg story, also by David Glovin and co-reported by Christopher Swann, said Bourke's lawyers provided documents to GAP and that Bourke funded the Kozeny-World Bank report. GAP says Kozeny's scheme in Azerbaijan came to light "in 1999, when U.S. investor and whistleblower Frederic Bourke came forward and exposed the fact that at least one major investor had been defrauded . . . ." Kozeny has denied taking money illegally from investors and criticized GAP for its work on Bourke's behalf.

New York State prosecutors brought a case against Kozeny in 2003 for stealing $180 million from U.S. investors. Bourke, who wasn't charged in that case, testified before the grand jury against Kozeny and said he was a victim of the fraud. In 2005, the U.S. government accused Bourke of joining the bribery plot. Kozeny, who has spent the last nine years in the Bahamas, is also wanted by authorities in the Czech Republic, where he's accused of stripping Czech companies of $1.1 billion.

A special thanks to Bloomberg's David Glovin for his excellent coverage of this story.

The Opinion and Order in U.S. v. Kozeny issued October 21, 2008 mentioned in our post yesterday deals directly with the Foreign Corrupt Practices Act's local law affirmative defense. That defense says a bribe paid to a foreign official is permitted if it was "lawful under the written laws and regulations of the foreign official’s" country. 15 U.S.C. §§ 78dd-1(c)(1), 78dd-2(c)(1) and 78dd-3(c)(1).

Defendant Frederic Bourke, heading to trial in New York for FCPA violations, asked for a jury instruction on the local law defense. He argued that under the laws of Azerbaijan, the payments in question were not punishable once they were reported to the country's president. Prosecutors didn't agree and, after a hearing in September, Judge Scheindlin issued her Opinion and Order.

She analyzed it this way. The Azerbaijan law relieving a bribe payer from criminal liability if the bribe is properly reported doesn't make the payment lawful when it was paid. Instead, reporting the bribe retroactively erases the stain of criminality.

It is true, she said, that a person cannot be guilty of violating the FCPA if the payment was lawful under the foreign law. But, there's no immunity under the FCPA merely because a person couldn't be prosecuted in the foreign country due to a technicality (e.g., time-barred) or because a provision in the foreign law relieves the person of criminal responsibility. "[I]t is inaccurate to suggest," Judge Scheindlin said, "that the payment itself suddenly became 'lawful' -- on the contrary, the payment was unlawful, though the payer is relieved of responsibility for it." (emphasis in original) On that basis, she denied Bourke's request for a jury instruction on the local law affirmative defense.

She was deciding the issue, by the way, under Rule 26.1 of the Federal Rules of Criminal Procedure. The Rule makes it clear that questions of foreign law are not facts for the the jury to decide but are questions of law for the judge to decide.

Bourke also asked for a specific instruction on true extortion. Judge Scheindlin left that door open, depending on Bourke's evidence at trial. She also said evidence of extortion would go to the issue of whether Bourke possessed a corrupt intent in making the payments. The government has to prove beyond a reasonable doubt, she said, that Bourke had an improper motive or purpose for the payment that was intended to induce the recipient to misuse his official position in discharging an official act. But the government, she said, is not required to show that the official accepted the bribe, that the official had the power or authority to perform the act sought, or that the defendant intended to influence an official act which was lawful.

Judge Scheindlin's decision doesn't reach beyond her courtroom in the SDNY, at least for now. But it does reinforce the idea -- stretching back to the Meade and Kay cases -- that courts generally agree with the government's narrow view of the FCPA's exception and defenses.

Please contact us here for a copy of Judge Scheindlin's Opinion and Order.

Frederic Bourke won't face Foreign Corrupt Practices Act charges after all. He was indicted in May 2005 with Victor Kozeny and David Pinkerton over an alleged plan to bribe officials from Azerbaijan from 1997 to 1999 in connection with the privatization of the state oil company. But the U.S. Court of Appeals for the Second Circuit affirmed the June 2007 dismissal of FCPA charges against Bourke, saying the government failed to indict him within the FCPA's five-year statute of limitations.

Kozeny wasn't a party to the appeal because he's outside the United States and fighting extradition. In October 2007, the Bahamas Supreme Court refused to order his return to the U.S. to face trial. He's from the Czech Republic and reportedly has Irish citizenship, but he's been living in the Bahamas for more than a decade. The Bahamas court said the FCPA charges against Kozeny were not provable or prosecutable under local law, and there was an abuse of the court process. Apparently the U.S. government did not properly disclose the U.S. trial court's dismissal of the FCPA charges on statute of limitations grounds, a failing the Bahamas judge cited as a reason for the ruling.

Co-defendant Pinkerton was dropped from the case in July this year after the government withdrew all charges against him. SeeUnited States v. Kozeny, No. 1:05-cr-00518-SAS (S.D.N.Y. July 2, 2008) (order of nolle prosequi). The former head of AIG Global Investment Corp. invested about $15 million of AIG's money with Kozeny. After the government ended the case against Pinkerton, his lawyer said, "We have always known that David Pinkerton is completely innocent of any wrongdoing and we are thrilled by his vindication. Mr. Pinkerton is a self-made man who through his hard work, integrity and talent rose to the highest levels of his profession. Now that these charges have been entirely dismissed, Mr. Pinkerton looks forward to continuing his career."Prosecutors obtained a related conviction in the case in February 2004. Clayton Lewis, a former employee of Omega Advisors, Inc., pleaded guilty to conspiring to violate the FCPA. Then in July 2007, Omega itself settled with the government, entering into a non-prosecution agreement with the DOJ and agreeing to a civil forfeiture of $500,000. Omega invested more than $100 million with Kozeny in 1998 for the Azeri privatization program. The program fizzled and Omega lost its entire investment, as did Bourke, AIG and others. Reports said Kozeny kept $182 million from the deal. Bourke, 62 -- owner of the luxury handbag brand Dooney & Bourke -- said after his indictment in 2005 that he invested $8 million with Kozeny only after lawyers had advised him the deal was legal. Soon after, he said, he suspected illegal behavior. His lawyers said he traveled to Azerbaijan to warn then President Heydar Aliyev about the scheme and he testified before a New York grand jury "as a victim of Kozeny's fraud."

Last month, a Washington-based non-profit watchdog group that defends whistleblowers alleged that James Wolfensohn, the former head of the World Bank, helped Kozeny by quashing staff concerns and writing letters on Kozeny's behalf. Wolfensohn has said the report by the Government Accountability Project (GAP) is wrong.

On its website, GAP says,

The report shows that James Wolfensohn, then president of the World Bank, personally assisted a rogue financier in his efforts to gain control of the State Oil Company of the Republic of Azerbaijan (SOCAR). While these efforts were ultimately unsuccessful, documents show that Wolfensohn silenced Bank staff members who spoke out about corrupt government officials working with Viktor Kožený, a notorious financial operator who had allegedly defrauded investors in the Czech Republic of nearly $1 billion only three years earlier.

“Before the financial fiasco in Azerbaijan occurred, Bank staff tried to expose the risks inherent in dealing with Kožený and corrupt government officials poised to profit illicitly from Caspian oil,” said Bea Edwards, GAP International Program Director and author of the report. “They were silenced about the impending fraud, however, when Wolfensohn directly intervened on Kožený’s behalf.”

A Bloomberg story said Bourke's lawyers provided documents to GAP and that Bourke funded the Kozeny-World Bank report. GAP says Kozeny's scheme in Azerbaijan came to light "in 1999, when U.S. investor and whistleblower Frederic Bourke came forward and exposed the fact that at least one major investor had been defrauded . . . ." Kozeny has denied taking money illegally from investors and criticized GAP for its work on Bourke's behalf.

A report yesterday from Dow Jones said the United States has dropped its sputtering prosecution of David B. Pinkerton on charges of conspiring to violate the Foreign Corrupt Practices Act.

The government had alleged that in June 1998, as the head of AIG Global Investment Corp., Pinkerton invested about $15 million of AIG's money in a consortium headed by Victor Kozeny -- with the understanding that Kozeny was bribing Azeri officials to ensure the privatization of the State Oil Company of the Republic of Azerbaijan (SOCAR).

Prosecutors last year suffered a double setback in the case. In June 2007, a federal district court in Manhattan dismissed all FCPA and related counts against Kozeny, Pinkerton and their co-defendant, Frederic Bourke, Jr. The court said the FCPA's five-year statute of limitations had already expired. The government appealed, but then in October the Bahamas Supreme Court ruled against Kozeny's extradition, refusing to order his return to the U.S. to face trial. He's from the Czech Republic and reportedly has Irish citizenship, but he's been living in the Bahamas for more than a decade.

Dow Jones said U.S. District Judge Shira A. Scheindlin's order of nolle prosequi dismissing the charges against Pinkerton was signed but hadn't yet appeared in the court's public electronic filing system. The report continued,

In the nolle prosequi request - a copy of which was reviewed by Dow Jones Newswires - Assistant U.S. Attorney Jonathan Abernethy wrote, "Based upon a review of the evidence and information pertaining to this defendant acquired since the filing of the indictment, the government concluded that further prosecution of David Pinkerton in this case would not be in the interest of justice."

No word yet on whether the government will also drop its case against Bourke.

Prosecutors obtained a related conviction in February 2004. Clayton Lewis, a former employee of Omega Advisors, Inc., pleaded guilty to conspiring to violate the FCPA. Then in July 2007, Omega itself settled with the government, entering into a non-prosecution agreement with the DOJ and agreeing to a civil forfeiture of $500,000. As the Justice Department noted then, Omega invested more than $100 million with Kozeny in 1998 for the Azeri privatization program. But the program fizzled and Omega lost its entire investment.

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A safe andhappy Fourth of July to our American readers. It's easy to be cynical, and somehow "patriotic" has become a slur. That's too bad. Expressing gratitude for the blessings of country and countrymen is always fitting. To be sure, our Republic reflects human nature -- all of it. The flaws and pettiness and insecurities are there, but so are our finest traits. And while Americans from left, right and center are often bothered by the messiness of our great experiment with democracy, we can all be proud that ours is still a country of freedom, opportunity and hope. See you next week.

Friday's coming just in time. We've used up more than our alloted pixels this week, but it wasn't our fault. There was Jack Grynberg's riveting tell-all complaint against his former big-oil partners, fresh allegations of cover-up or neglect or both in Seimens' internal investigation, and rising outrage at the impotence of the law, courtesy of BAE, Prince Bandar, Mr. Blair and the Serious Fraud Office. Added to all that was the appearance of the Buy-Now button to the right, which garnered a million clicks (if we round up to the nearest seven-digit number).

So let's take a breather with . . . a few anecdotes. These, readers will understand, are never intended to trivialize corruption, but to expose it. Nor to belittle or embarrass anyone who has to make a living in a corrupt society.-- A fellow from Azerbaijan said the public there complained about the "bribe cost" of drivers' licenses being too high. So the government sent its official anti-corruption team to hang out in the motor vehicle bureau. Result? Now you have to pay bribes to both the motor vehicle people and the anti-corruption squad...

-- The Saudi customs clerk showed the man his goods inside the fenced holding area. Instead of unlocking the gate, the customs clerk rubbed his thumb and finger tips together in the universal demand for baksheesh. The man emptied his pockets on the table in front of the clerk. When the clerk saw that all the money the man carried amounted to just $36, he yelled, "What are you, English?"

-- Back in Azerbaijan, it's common knowledge that people buy juicy government posts, and that the top customs spot at the airport is purportedly worth $200,000. Job seekers do their market research to determine what the rate of return on their investment will be, given normal corruption levels during their tenure.

That's it for this busy week. But if you've got a first-hand story or a second-hand anecdote, send it along by email here (anonymity guaranteed) or as a no-name comment to this post here. We won't publish the emails or comments now, but we'll share them (without attribution) from time to time.

We noted yesterday some of the causes of judicial corruption -- underpaid and overworked judges, complex and slow court procedures, and anti-corruption enforcement monopolized by a single agency. Unfortunately, all those symptoms show up in Azerbaijan's judicial system.

A Living Wage? Judges' salaries are low even after a big recent pay raise. According to Transparency International's 2007 country report, local judges make the annual equivalent of $11,635 -- compared to $23,800 in Estonia. As for their workload, there are only about 4 judges per 100,000 people. That's the lowest number in the region. Germany, by the way, has more than five times as many judges per capita.

No Show, No Problem. Predictably, court litigation is extremely time-consuming. "This is especially ruinous for private companies," TI said, "which usually prefer to drop a case or 'negotiate' with the judge. Parties in litigation have many opportunities to drag out a case because the legis­lation prevents a court from proceeding to a deci­sion if the other party does not appear in court. There is no punishment for the defaulting party. On average about 5 per cent of businesses use courts in Azerbaijan, compared with 30 per cent in Europe and Central Asia."

Going Once, Going Twice . . . Judges -- who owe their positions to the executive branch, as does the general prosecutor -- can decide whether or not to hear a case without giving any explan­ation. And in rendering judgments, they aren't bound by precedent or statutory law. Fuad Mustafayev, deputy chairman of the opposition Popular Front Party, told TI that judges in Azerbaijan decide cases in two ways: for political reasons or, in a judi­cial equivalent to the construction "tender," they rule in favor of the highest bidder. Lawyers complain that they've been turned into "brokers" rather than legal advocates. The Ministry of Justice evaluates judges’ performances annually. "None has been fired for corrupt practices, however, though such cases are numerous . . . ," TI said.

Enforce This. Bailiffs aren't part of the judicial system, but fall under the executive branch. TI said they "lack the power, skills, resources and initiative to enforce decisions. . . . Failure to enforce court decisions further undermines trust in the justice system."

Recognizing Risk. Since its independence from the Soviet Union in 1991, oil-rich Azerbaijan has been popular with foreign investors. They've committed some $60 billion to long-term oilfield development there. But the country of eight million demonstrates again that where the rule of law is under attack, corruption flourishes. That's why companies trying to maintain an effective FCPA compliance program will want to mark Azerbaijan -- and other countries showing the same symptoms -- with a big red flag.

The Bahamas News Online Edition (The Bahama Journal) reports today that the Supreme Court there has ruled against the extradition of Victor Kozeny (left). The ruling means Kozeny is no longer under arrest in the Bahamas, which had detained him at the request of the U.S. government. He was indicted in the United States in October 2005 for violating and conspiring to violate the U.S. Foreign Corrupt Practices Act in connection with a scheme to bribe senior government officials in Azerbaijan.

On June 21, 2007, the U.S. District Court for the Southern District of New York dismissed all FCPA and related counts against Kozeny and his co-defendants, Frederic Bourke, Jr. and David Pinkerton, based on the running of the five-year statute of limitations. The Justice Department's appeal against the dismissal is still pending. If the charges are reinstated, only Bourke and Pinkerton will now go to trial.

According to the report, the Bahamas court said the FCPA charges against Kozeny were not provable or prosecutable under local law, and there was an abuse of the court process. Apparently the U.S. government did not properly disclose the U.S. trial court's dismissal of the FCPA charges on statute of limitations grounds, a failing the Bahamas judge cited as a reason for the ruling.

Victor Kozeny is from the Czech Republic. He reportedly has Irish citizenship and has lived in the Bahamas for more than a decade. American prosecutors had sought evidence against him and his co-defendants from the Netherlands and Switzerland. Delays in obtaining the evidence led to the running of the statute of limitations in the U.S. prosecution.

The press is reporting that the Department of Justice on August 21, 2007 appealed the dismissal of FCPA charges against three men in connection with a bribery scheme in Azerbaijan.

On June 21, 2007, the U.S. District Court for the Southern District of New York dismissed all FCPA and related counts of an indictment against Viktor Kozeny, Frederic Bourke, Jr. and David Pinkerton. The District Court said the statute of limitations had run. The Justice Department argued that the five-year limitations period should be tolled based on the government's official requests for foreign evidence from the Netherlands and Switzerland.

The October 2005 indictment accused the three in a scheme to bribe senior government officials in Azerbaijan in order to ensure the privatization of the State Oil Company of the Republic of Azerbaijan ("SOCAR").

On July 6, 2007, hedge fund Omega Advisors, Inc. acknowledged that Clayton Lewis, one of its former employees, had learned, prior to Omega’s investment in the privatization of SOCAR, that Kozeny had entered into arrangements with some officials of the government of Azerbaijan that gave those officials a financial interest in the privatization. Lewis pleaded guilty on February 10, 2004 to conspiracy to violate the FCPA .

Omega entered into a settlement agreement with the DOJ and will not be prosecuted for any crimes related to its participation. Omega civilly forfeited $500,000 and agreed to continue to cooperate with the Government in connection with its investigation and prosecution of the case.

As a postscript, the DOJ noted that Omega invested more than $100 million in the Azeri privatization program in the spring and summer of 1998 and lost all of its investment, and to date privatization has not occurred.